Child support in shared custody arrangements

In cases involving shared parenting arrangements, parents need to be aware of a tax court ruling regarding the allocation of the “eligible dependent credit”. Up until Harder v The Queen, 2016 TCC 197, separated parents who shared custody often followed the old practice of paying a “set off” amount. That is when the amount of child support payable by one parent (the lower income earner) is deducted from the amount of child support payable by the other parent (the higher income earner). The result is that instead of both parents exchanging child support on a monthly basis, the higher income earner pays the “set off” amount to the lower income earner. This practice was not only convenient, but also generally acceptable for tax purposes.
The new tax court ruling in Harder changed things. In Harder, the parties shared custody of their two children, they agreed on the child support obligations (which were based on a set off arrangement), and further agreed that each parent would claim one of the children as a dependent for the eligible dependent tax credit. However, the tax court disallowed the allocation of the credit because of the set off amount paid by the higher income parent to the other.
Harder considered the interpretation of section 118(5) of the Income Tax Act. That section provides that a person who has to pay support for a dependent child cannot claim tax deductions or benefits with respect to that dependent. That means, for example, in a situation where parents share custody and rotate CRA benefits, the parent paying child support may not claim those benefits and credits in relation to the children or children (“the dependent”) for whom that parent pays support.
Harder’s message is that if separating spouses, who share custody, wish to each avail themselves of a dependent deduction, the proper approach is for each shared custody parent to actually pay the full table child support amount to the other parent, so that the full table amount is paid by each parent to the other. The court in Harder said there must be a “comprehensive documentary and evidentiary record” of support being exchanged by both parties which, in this day and age, can be accomplished through cheques or recurring e-transfers. While some may see this as tedious or inconvenient, this is what we are left with until the legislature changes things!
If you are a parent who has separated and are planning on sharing custody, contact one of our family lawyers to make sure that your child support order or agreement enables you to avail yourself of the benefit of dependent deductions.